As well as a rate cut, the ECB is preparing a package of
other easing measures, Reuters reported earlier this month. They
include cutting the deposit rate into negative territory -
effectively charging banks to hold cash at the ECB overnight -
and targeted measures to help boost lending to smaller firms.

"Price action is mainly being driven by the prospect of the
ECB (easing) next week," said BNP Paribas strategist Patrick
Jacq. "The ECB may not only cut interest rates but could also
take additional decisions on liquidity measures, and that's
supporting the market."

Equivalent Spanish yields were down by a similar amount at
2.87 percent with Irish yields 1 bp lower at 2.69
percent.

The firm tone augured well for an Italian auction on
Thursday of 6.0 billion to 7.5 billion euros of five- and
10-year bonds, after a smooth sale on Tuesday of 3 billion euros
of zero-coupon debt and 1 billion euros of inflation-linked
bonds.

"There might just be a little bit of concession going into
the auction tomorrow but it should go OK," a trader said.
"Bigger picture, we still remain constructive on the periphery
given the ECB outlook and think there will be further
compression in spreads."

A sale of up to 2 billion euros of German 30-year bonds on
Wednesday is also expected to be comfortably absorbed given the
small size of the offer and the ECB's easing signals.

The 30-year Bund yielded 2.24 percent in the secondary
market, down 2 bps on the day with 10-year Bund yields
, the benchmark for euro zone borrowing, down a
similar amount at 1.32 percent. Other top-rated euro zone bond
yields were 2-3 bps lower.
(Editing by Catherine Evans)